The Central Bank of Russia (CBR) has decided against cutting their interest rate, instead deferring until inflation falls within target of 5 to 6 percent.

August marks the eleventh month the rate remains unchanged. The
official CBR statement said, “the decision
was based on the assessment on inflationary risks and
perspectives for economic growth.”

"In July and at the beginning of August the rate of inflation
declined, but remained above the target range and as of 5 August
2013 was estimated at 6.5% over a year ago,” the CBR said in
justification of leaving the the benchmark at 8.25 percent.

In recent months Russia’s economy has slowed, and some analysts
believe the Bank missed its chance to lower the rate while the
ruble was stronger. Russia’s GDP slowed to 1.2 percent in the
second quarter, according to preliminary data by Rosstat, and hasn’t expanded since
the fourth quarter of 2011, increasing the likelihood that the
country will grow at well under 3 percent this year.

Elvira Nabiullina, formerly an economic adviser to President
Putin, took over as central bank chairman in June, and has
repeatedly stated monetary easing as a goal. She didn’t make any
big moves at her first Bank meeting as chairman, and in line with
many policy makers, is hesitant to do so on such a weak ruble.

Friday was her second meeting acting as chair.

Experts' foresight

The CBR decision was largely anticipated, with economists split
whether the regulator would cut the interest rate or wait until
September to ease monetary policy in Russia’s contracting economy.

An overwhelming camp of analysts forecast no change, as officials
signaled they were waiting for inflation to drop below 6 percent
before decreasing the benchmark.

Most proponents of keeping the rate 'as-is' were worried about
the negative effect the decision would have on the Russian stock
market, which unchanged, will likely send equities into a
five-day losing streak.

“A rate cut in these conditions could lead to big costs on the
Forex market, so we doubt that there will be a rate cut,"
Alfa Bank analyst Dmitry Dolgin said prior to the announcement,
Interfax reported.

However, HSBC chief economist for Russia and the CIS, Alexander
Morozov, believed the CBR would cut rates by 25 basis points on
Friday and by another 25 basis points in October, when inflation
is expected to return to the targeted range of 5-6 percent. He
said the situation has changed fundamentally in the past month,
particularly the state of the economy. "While a month ago the
economy was growing, data for July that has come in so far
indicates a steep increase in the threat of a recession,"
Morozov said. Inflation, meanwhile, continues to slow and there
has been a "slowdown in the structural part of inflation,"
which bolsters optimism that it will slow further, he said.